Today we look back at our blog posting from February 26, 2020, at the beginning of the Coronavirus pandemic. At the time, we issued a mass email to clients and friends, and also discussed these points on the Van Wie Financial Hour. How did we do in the face of that uncertainty? We’ll dissect the discussion, using actual quotes from the 2020 blog (italicized), with current comments following.
“When market conditions become unusually disrupted, it warrants communication with our clients and friends.” Looking back, the markets were actually roiling, trading halts were being imposed, sometimes even before the market opened. It was a scary time for investors, and there was much to discuss.
“We won’t try to sugar coat this morning’s market futures – they are ugly.” Time has told the tale, and this was accurate. The market dropped more than 27% over the next month. Responding responsibly to those uncertain conditions would prove critical to our long-term investment outcome.
“Our concentration is always on the outlook for the business environment and corporate profits, which have been doing very well. How much impact will ultimately be felt on Q1, 2020 profits are unknown”. We foresaw the disruption, including interruption of worldwide supply chains. Under no scenario would our short-term economy be a pretty sight. But over-reacting is not really an option.
“With a product-oriented company, the result will mostly be felt in delayed sales, rather than lost sales. Some service businesses, particularly restaurants and bars, will incur actual lost sales. Bottom line – there will be some impact on profits.” These cautions have been spot-on, as many service businesses faltered, and far too many failed. Fortunately, demand for products is still playing catch-up, and the appetite for restaurants, etc. is now voracious and growing.
“Looking at the positive side, Americans have been finding out (the hard way) that diversification in supply chains is as important as diversification in portfolios.” Supply chain diversification was moving forward nicely, and America was winning the onshoring battle for critical supplies. Under the current Administration, progress has been halted and is actually starting to reverse, as companies are once again offshoring, apparently caring more about saving money than protecting production.
“We are finally energy independent, something I remember being promised back in the 1970s.” Our energy independence dream was fulfilled in 2020, but now, in 2021, gasoline prices are much higher, and much domestic production has been severely curtailed. We are again becoming dependent on countries that do not like us.
“How long it takes for the market to attain another new high is unknown. In the interim, we look at the fundamentals, and we see strength.” We know how far the market dropped, and we have witnessed unusual speed and magnitude in the recovery. Several new market records have been set, and on Friday, July 9, 2021, all three major indices (DJIA, S&P500, and NASDAQ) closed at all-time highs.
“Our suggestion is to ride this out, even if a market correction occurs. After all, a correction is about a 10% drop in equities, and we have gains over the past 14 months far above that number. Also, our portfolios have components of bonds, cash, and alternatives, which will not fall like the equities.” While we actually experienced a Bear Market (20% or greater decline), the recovery has been stellar, and our clients’ portfolios are reflecting the strength and speed of the recovery.
“Should anyone feel that they will lose too much sleep, please call us. Otherwise, enjoy a good book and avoid the fearmongers.” Results have proven this to be good advice, even in the face of adversity. It was a difficult time for investors and advisors, and our approach was a solid call. Rushing to “do something” is a general formula for inferior investment performance. We invest for the long term.
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